Readers' comments

The public has grown used to lower rates to the extent that rates of 1-1.25% now look daunting, but it is just possible that smaller rises in rates could be beneficial for certain sectors of the economy and for the well-being of the economy as a whole. Ultimately, rates have to normalise at some point. It will be uncomfortable when they do, but it is a necessary evil.

The UK situation is complicated in many ways but one fact is simple the Bank of England keeps missing its inflation target. It's claims that such moves are "one-off" and "temporary" get weaker with each higher figure.
I notice that the usually accurate analysis of notayesmanseconomics is this.
"Even worse than this if we go back to the Bank of England’s forecasts for 2010 we can see that they underestimated inflation in 2010 by a considerable amount. This continues the Bank of England’s forecasting record which is now so poor in this area it is abject. This is important because it has based its economic policy on this and this policy with base rates at 0.5% and an asset purchase programme of some £200 billion is extremely expansionary. This policy looks less and less appropriate."

Implied in this is the possibility that the Bank of England may be deliberately under-estimating inflation...If so index-linked gilts may yet prove to be a good investment buttonwood

I believe that you just said that it is fine and appropriate for wage earners to become poorer and poorer due to inflation, but unjust for holders of capital to become poorer for the same reason. Or did I miss something?

Yes the Bank never lowered the policy rate below 2% in its 300 years of existence. But are you really suggesting that we should go back to normal based on what? Unemployment rate is way up by historical standards and is rising again, the housing market is extremely weak, and the economy is going to swallow the harshest fiscal medicine in living memory. If we look at GDP in level terms, the economic recovery is slightly faster than the Great Depression era. All these reasons suggest that there is nothing "normal" to indicate that the Bank must hike rates.

Missing the inflation target is bad enough; punishing savers for the Bank's failure is disgraceful.

Perhaps the British consumers had one last go at spending - and enjoying life - before the deep austerity cuts and VAT rise this year.

Savers are always punished. Any interest earned by US savers is taxed at the marginal rate. So after inflation and taxes, savers lose. This is a policy designed by the Fed gov't to ensure a maximum consumption rate. Toss in easy credit, and you get a unsustaibable consumption bubble that blows up.

Where can a British person save? ICESave? Northern Rock? Any of the other banks that used those savings to make bad loans?

But as long as the banks are bailed out - with a possible hit to the savers twice (over the insurance limit, and as a taxpayer) - all will be fine in the long run, as money is neutral.